Russian central bank increases interest ratio once more


(MENAFN) In a decisive move to address ongoing inflationary pressures, the bank of Russia has increased its key interest rate from 18 percent to 19 percent. This adjustment, announced on Friday, reflects the central bank's concern that domestic demand continues to outstrip the economy's capacity to produce sufficient goods and services.

The central bank highlighted that inflation is anticipated to exceed its earlier forecast of 6.5-7.0percent for the year, with consumer prices having already surged by 9.1percent year-on-year in August, significantly surpassing the government’s target of 4percent . In its statement, the bank emphasized the necessity for “additional monetary tightening” to kickstart a disinflation process and to work towards achieving the inflation target set for 2025.

This latest interest rate hike follows a substantial increase of 200 basis points implemented in July. Over the second half of 2023, the central bank has raised rates five times, escalating from 7.5percent to the current level of 19percent. Looking ahead, the Bank of Russia indicated that further rate increases could occur at its next meeting in October, as persistent inflationary pressures continue to remain high without showing signs of a downward trend.

When questioned during a press conference about the possibility of raising the key rate to 20percent or higher, the central bank's head, Elvira Nabiullina, affirmed that the institution is prepared to take necessary actions to restore inflation to the 4percent target.

In its analysis, the central bank reported that recent data on the country’s gross domestic product (GDP) for the second quarter, along with economic indicators from July and August, suggest a slowdown in Russia’s economic growth. This deceleration is attributed to limited supply and decreased external demand. Despite this slowdown, consumer activity remains robust, buoyed by rising household incomes and an all-time low unemployment rate, indicating underlying strength in the domestic economy.

As the Bank of Russia navigates these challenges, its recent interest rate hike underscores the complexities of balancing economic growth with the need to curb inflation in an increasingly volatile economic environment.

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